Fancy foot­work needed

The reg­u­la­tory en­vi­ron­ment makes ex­tremely high de­mands.

MED­I­CAL SCHEMES in SA once again face great chal­lenges this year. On the one hand, mem­bers’ ex­pec­ta­tions must be met and med­i­cal in­sur­ance made more ac­ces­si­ble and af­ford­able to more peo­ple – es­pe­cially those in the lower in­come groups – while re­main­ing within the reg­u­la­tory frame­work. On the other, the schemes have to keep costs un­der con­trol and stay com­pet­i­tive.

“First there are the ‘nor­mal’ cost in­creases that have to be taken into ac­count, such as the trend to higher con­sumer and ser­vice pat­terns by mem­bers and doc­tors, the in­creas­ingly older pool of in­sured lives, the higher costs as­so­ci­ated with tar­iff in­creases, the weak­en­ing rand, the cost of ser­vice in­fla­tion – sys­tems, salaries, spe­cialised ser­vices, such as ac­tu­ar­ial, fi­nan­cial, IT and com­pli­ance – in a very ser­vice-in­ten­sive in­dus­try, and the ef­fect of HIV/Aids and re­lated ill­nesses,” says Louis Botha, MD of Absa Health­care Con­sul­tants and chair­man of the Fi­nan­cial Plan­ning In­sti­tute’s (FPI) health­care com­mit­tee.

At the same time, med­i­cal schemes con­stantly face reg­u­la­tory chal­lenges, with new pre­scrip­tions for main­tain­ing sol­vency lev­els and the struc­tur­ing of ben­e­fits. They also have to make plans to pre­vent the out­flow of mem­bers to GEMS, he adds.

Medihelp CEO An­ton Ri­j­nen agrees that the reg­u­la­tory en­vi­ron­ment makes ex­tremely high de­mands. “The med­i­cal scheme in­dus­try is one of the most reg­u­lated in the coun­try, and this some­times has a neg­a­tive ef­fect on real in­no­va­tion as far as schemes’ prod­ucts and other ser­vices are con­cerned.

“Co-op­er­a­tion to get leg­is­la­tion pro­mul­gated that will sat­isfy most par­ties and ben­e­fit health­care in SA will de­mand per­se­ver­ance and pa­tience,” he says.

“The fact that leg­is­la­tion tries to pro­tect mem­bers’ in­ter­ests will also mean that med­i­cal scheme ad­min­is­tra­tors will have a greater re­spon­si­bil­ity to act in line with leg­is­la­tion.

“Com­mu­ni­ca­tion

is GROWTH An­other great chal­lenge, he says, is to in­crease the size of the pool of med­i­cal

there­fore

very im­por­tant – es­pe­cially to in­form mem­bers pos­i­tively about ini­tia­tives that at first glance ap­pear to be neg­a­tive, as well as about reg­u­la­tory changes that could af­fect them. In gen­eral, med­i­cal schemes will have to en­sure that, when the time ar­rives, they can ab­sorb any changes with the min­i­mum ef­fect on their mem­bers, their health­care cover and their re­serves.” REG­U­LA­TION A busy year is ex­pected on the reg­u­la­tory front, says Botha. “Apart from the amend­ments to the Med­i­cal Schemes Act, the most im­por­tant of which is Cir­cu­lar 8 – to in­tro­duce one com­mon op­tion for all mem­bers per scheme as far as com­pul­sory ben­e­fits are con­cerned and which takes cross-sub­sidi­s­a­tion to a next level – and the Risk Equal­i­sa­tion Fund (REF), still to be fi­nalised are the Health­care Char­ter, the Low-In­come Med­i­cal Scheme (LIMS) and how the costs of private hos­pi­tals will be han­dled.”

The set­ting up of a cen­tral board to ne­go­ti­ate with the three hospi­tal groups on be­half of ev­ery­one has been mooted. Al­ter­na­tively, “cap­ping” can be looked at, but this is a risky idea, Botha says.

Af­ter the reg­u­la­tion of phar­macy tar­iffs in 2006, the fo­cus this year will prob­a­bly shift to private hos­pi­tals and other tar­iff reg­u­la­tion, Ri­j­nen says.

“How­ever, reg­u­lated prices should be guarded against, since that nor­mally re­sults in cheaper ser­vices. The prob­lem then is that the private sec­tor can usu­ally no longer pro­vide th­ese ser­vices at th­ese prices, re­sult­ing in them no longer be­ing ob­tain­able or of a much poorer qual­ity,” he says.

Stadler says there will be more pres­sure on ad­min­is­tra­tors this year, and also a greater onus on schemes’ trustees and se­nior of­fi­cials, mak­ing their re­spon­si­bil­ity re­gard­ing cor­po­rate and risk man­age­ment in­creas­ingly im­por­tant. The au­dit­ing of schemes will also be­come more com­plex. scheme mem­bers.

“The pool has re­mained stable at about 7m lives for the past few years, but all in­di­ca­tions are that this is shrink­ing as a re­sult of in­creas­ing costs. Af­ter all, med­i­cal scheme cover is in­sur­ance, and the same prin­ci­ples re­gard­ing risk pools, economies of scale and cross-sub­si­dis­ing ap­ply.”

He says far too many younger, health­ier mem­bers are still be­ing moved from one scheme to an­other by health­care con­sul­tants, with­out new, unin­sured lives be­ing added to the in­dus­try.

“Health­care con­sul­tants should be com­pen­sated far more for re­cruit­ing new, unin­sured lives than for mov­ing al­ready in­sured lives from one scheme to an­other. The chal­lenge is there­fore to de­velop in­no­va­tive and af­ford­able med­i­cal scheme prod­ucts that are made up and priced in such a way that cur­rently in­sured lives do not leave the mar­ket and that the door is also opened for new mar­kets/mem­bers to en­ter the in­dus­try.”

Botha says that in­creas­ing the num­ber of in­sured lives de­pends on two im­por­tant as­pects – the cost of in­sur­ance and who pays for it.

“If work­ers who have not paid in the past are now obliged to do so, the trade unions will ob­ject and cer­tainly in­sist on wage in­creases, which will push up the cost of labour. If em­ploy­ers have to pay, it will in any case in­crease the cost of labour, which will af­fect the econ­omy.

“An­other al­ter­na­tive is a larger State sub­sidy, which is not pos­si­ble be­cause of other eco­nomic pri­or­i­ties and lim­i­ta­tions. As far as the present num­ber of in­sured lives is con­cerned, all par­ties should keep an eye on the de­vel­op­ments sur­round­ing the REF to see whether they won’t fi­nance the new gen­er­a­tion of in­sured work­ers,” he says.

“One could ar­gue that the REF is seen as not be­ing po­lit­i­cally cor­rect, be­cause it could im­ply that the ‘pre­vi­ously dis­ad­van­taged’ (who pos­si­bly did not en­joy med­i­cal cover in the past) would be sub­si­dis­ing the ‘pre­vi­ously priv­i­leged’. But if it is im­ple­mented, it will un­doubt­edly place a greater bur­den on the ad­min­is­tra­tion side of schemes in par­tic­u­lar. This will hope­fully be bal­anced by the fact that med­i­cal schemes that are cur­rently be­ing ne­glected be­cause of their older mem­ber­ship tal­lies will ben­e­fit, thereby mak­ing the play­ing field more level,” he says. AF­FORD­ABLE COVER Are ini­tia­tives such as LIMS re­ally the an­swer for more af­ford­able cover at the lower end of the mar­ket?

“The pos­i­tive side of LIMS is that it has the po­ten­tial of in­creas­ing the num­ber of in­sured lives. But the pity is that an en­tirely new dis­pen­sa­tion is needed for it – which ac­tu­ally amounts to ad­mit­ting that the cur­rent dis­pen­sa­tion, largely as a re­sult of the lev­els set for min­i­mum ben­e­fits, is too ex­pen­sive,” Botha says.

He feels the med­i­cal scheme in­dus­try is still be­ing ham­pered by a ten­dency to an­ti­s­e­lec­tion, that is, con­sumers and sup­pli­ers use or abuse cer­tain prod­ucts or op­tions to their own ad­van­tage.

“One could there­fore ask whether LIMS won’t en­large the po­ten­tial for anti-se­lec­tion, or al­ter­na­tively, how anti-se­lec­tion

will be pre­vented in such an en­vi­ron­ment. Fur­ther un­cer­tain­ties are whether there will be a sep­a­rate LIMS act and what a LIMS REF will look like. One also won­ders what kind of sys­tems and other ad­min­is­tra­tive changes ad­min­is­tra­tors will have to make and how th­ese will ul­ti­mately af­fect costs – in other words, whether the orig­i­nal ob­jec­tives of reach­ing a new tar­get mar­ket, can be achieved.

Stadler says the ex­pected in­tro­duc­tion of LIMS (and other low-cost schemes) will put a lot of pres­sure on cur­rent schemes’ benef it- de­vel­op­ment process and cre­ativ­ity as far as ben­e­fit pack­ag­ing is con­cerned.

“On the other hand, it’s a pos­si­ble so­lu­tion for the emerg­ing mar­ket – more lives must be cov­ered. But the fact that med­i­cal cover is not so strictly en­forced yet and isn’t com­pul­sory could ham­per the im­ple­men­ta­tion of the scheme.”

He says cur­rent ini­tia­tives to in­crease the pool of in­sured lives from 7m to, say, 11m should be pro­duc­tive, “but it’s be­ing ham­pered by leg­is­la­tion, as well as by the bur­den of be­ing cost-ef­fec­tive in re­spect of the price you pay com­pared with what you get for your money.”

Ri­j­nen says there aren’t yet suf­fi­cient sta­tis­tics on the claims pat­terns of the low­cost mar­ket and that the med­i­cal in­sur­ance con­cept is also not yet es­tab­lished in the low-cost mar­ket.

“It will there­fore still be dif­fi­cult to de­velop, mar­ket and run this kind of prod­uct and scheme prop­erly. How­ever, in the end the low-cost mar­ket is one of few op­tions for get­ting unin­sured work­ers who work in a for­mal con­text into the mar­ket.

“We there­fore don’t have much choice but to make it work, and our suc­cess will de­pend on our abil­ity to un­der­stand this mar­ket cor­rectly and then sup­ply its needs, not sim­ply of­fer what we think it wants,” Ri­j­nen says.

He says the large-scale amal­ga­ma­tion of med­i­cal schemes will con­tinue this year. “The end will prob­a­bly be a few megaschemes, with their as­so­ci­ated mega-sup­pli­ers and mega-ad­min­is­tra­tors. The re­sult of this should be a larger risk pool with, con­se­quently, bet­ter cross-sub­sidi­s­a­tion, lower costs and greater prod­uct sta­bil­ity.

“The in­flu­ence of the in­creas­ingly larger GEMS will also be a chal­lenge for those schemes with large num­bers of civil ser­vice mem­bers – about 22 schemes. Th­ese schemes will be forced to re­cruit mem­bers within the stag­nant in­dus­try or en­ter new mar­kets to make up for the loss of th­ese mem­bers and the as­so­ci­ated loss of ad­min­is­tra­tive in­come,” Ri­j­nen says.